Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — FY2003 Earnings Presentation
32 slides from Lloyds Banking's earnings presentation, Mar 8, 2004
Slide 1: 2003 Results
2003 Results 8 March 2004 Mike Fairey Deputy Group Chief Executive
Slide 2: Major items affecting earnings trend
Major items affecting earnings trend Increase/ 2002 2003 (Decrease) £m £m % Profit before tax 2,618 4,348 66 Investment variance (943) 125 Changes in economic assumptions 55 (22) Profit on sale of businesses - 865 3,506 3,380 (4) Competition Commission impact - (174) FRS17 income 165 34 3,341 3,520
Slide 3: Key performance issues
Key performance issues • Excluding disposals, strong growth in our lending and deposit base • Improved market share in many key product areas • Some abatement of margin pressure • Costs remain firmly under control • Asset quality maintained
Slide 4: Revenue
Revenue Increase/ 2002 2003 (Decrease) £m £m % Net interest income 5,171 5,255 2 Other finance income 165 34 (79) Other income 3,551 4,619 30 Total income 8,887 9,908 11 Investment variance (943) 125 Changes in economic assumptions 55 (22) Income* 9,775 9,805 - * excluding changes in economic assump
Slide 5: Major items affecting revenue trend
Major items affecting revenue trend Increase/ 2002 2003 (Decrease) £m £m % Income* 9,775 9,805 - Provisions for customer redress (205) (100) Actuarial changes 77 (91) Bond sales/closed forex positions 242 295 Acquisitions 101 201 FRS17 other finance income 165 34 Competition Commission impact - (174
Slide 6: Business volumes
Business volumes Excluding the impact of disposals: • Total customer lending increased by 10% to £135.3 billion – consumer credit up 21% to £20.1 billion – mortgage balances up 13% to £70.8 billion • Assets in Financial Markets reduced by 9 per cent in the second half of 2003 • Customer deposit bala
Slide 7: Net interest margin
Net interest margin 2002 2003 % % Group margin 3.20 3.04 Competition Commission impact - 0.10 3.20 3.14 Difference from 2003 (6)bps Analysis (excluding CC impact): UKRB & Mortgages (10)bps Wholesale & International 4 bps
Slide 8: Net interest margin – half-yearly trends
Net interest margin – half-yearly trends % 3.75 3.36 3.21 3.25 3.15 3.27 3.06 3.13 3.01 3.07 2.75 2.84 2.79 2.70 2.53 2.25 2002H1 2002H2 2003H1 2003H2 Group Domestic International
Slide 9: Operating expenses
Operating expenses Increase/ 2002 2003 (Decrease) £m £m % Operating expenses 4,913 5,173 5 Provisions for customer redress - (200) Acquisitions (105) (215) 4,808 4,758 (1)
Slide 10: Charge for bad and doubtful debts
Charge for bad and doubtful debts % of Average 2002 2003 Lending £m £m 2002 2003 UKRB & Mortgages 496 594 0.68 0.72 Wholesale 378 300 0.83 0.64 International Banking 162 69 1.24 0.47 Central group items (7) (13) - - Total charge 1,029 950 0.77 0.66
Slide 11: Charge for bad and doubtful debts by half-year
Charge for bad and doubtful debts by half-year UKRB & Mortgages % of Average 2003H1 2003H2 Lending £m £m 2003H1 2003H2 Personal loans/overdrafts 218 212 4.44 4.08 Credit cards 85 97 3.34 3.08 Mortgages (5) (13) (0.02) (0.04) Total charge 298 296 0.76 0.69
Slide 12: Asset quality
Asset quality • No major corporate provisions • Mortgage book remains high quality • Non-performing lending reduced by 14% to £1,218 million • Specific provisions represent over 100 per cent of non- performing lending
Slide 13: Results by half-year
Results by half-year 2003H1 2003H2 Increase £m £m % Profit before tax* 1,648 2,597 58 Customer redress provisions 300 - Bond sales/closed forex positions (295) - Loss/(profit) on sale of businesses 15 (880) 1,668 1,717 3 * excluding changes in economic assumptions and investment variance variance
Slide 14: Business unit performance by half-year
Business unit performance by half-year* Increase/ 2003H1 2003H2 (Decrease) £m £m % UK Retail Banking & Mortgages (before customer redress) 590 631 7 Insurance & Investments (before customer redress) 591 603 2 Wholesale & International Banking (excluding disposal gains) - Wholesale 412 478 16 - Inter
Slide 15: Continuing operations
Continuing operations Continuing Discontinued operations operations Total 2003 2003 2003 £m £m £m Net interest income 4,744 511 5,255 Other finance income 34 - 34 Other income 4,477 142 4,619 Total income 9,255 653 9,908 Operating expenses 4,901 272 5,173 Trading surplus 4,354 381 4,735 Provisions/g
Slide 16: Scottish Widows
Scottish Widows • Revised strategic focus with objective to: – improve overall performance – reduce earnings volatility – generate free cash flow in 2004 • Free asset ratio improved to 13.5% (2002: 12.2%) • On a market consistent basis, we estimate a ‘realistic’ surplus which is more than 3 times th
Slide 17: Capital
Capital • Capital ratios strengthened significantly; strong credit ratings maintained – tier 1 9.5% (2002: 7.7%) – total 11.3% (2002: 9.6%) • High ROE at 27.4%; economic profit £1,553 million, up 4%* • Dividend maintained • Impact of IFRS implementation in 2005 • Implementation of Basel II is expect
Slide 18: Summary
Summary • Good franchise growth • Costs under control • Asset quality good • Capital position strengthened • Second half momentum
Slide 19: 2003 Results
2003 Results 8 March 2004 Eric Daniels Group Chief Executive
Slide 20: Key management priorities
Key management priorities • To manage the business portfolio and reduce earnings volatility • To maintain and build levels of profitability • To position the Group for growth Interim Results, 1 August 2003
Slide 21: Manage the business portfolio
Manage the business portfolio • Strategic sales – International businesses – Emerging markets debt portfolio • Life & Pensions – Capital – Dividends • Risk – New risk structure – Risk managed at every level – Asset quality stable
Slide 22: Maintain and build profitability
Maintain and build profitability • Economic profit discipline – Economic profit* growth of 4% – Balance sheet growth – Customer assets† up by 10% – Improved balance sheet efficiency – Improved Scottish Widows new business margins • Cost discipline – Costs‡ down 1% – Managing to positive jaws – Proce
Slide 23: Position the Group for growth
Position the Group for growth • UK Retail Banking and Mortgages - continue momentum • Wholesale & International Banking - build momentum • Insurance & Investments - recover
Slide 24: Position the Group for growth: UK Retail Banking and Mortgages
Position the Group for growth UK Retail Banking and Mortgages 2002 2002 2003 2003 H1 H2 H1 H2 631 590 Profit before Tax £ m* 525 Growth rates: 483 2003 vs 2002: +21% 03 H2 vs 03 H1: +7% * excluding provision for customer redress Four half years of growth
Slide 25: Maximising the value of our retail franchise
Position the Group for growth Maximising the value of our retail franchise Where we were . . . . . . Where we are going Product focus Customer focus Products and distribution as Distribution a cost centre profit centres Matrix management Clear accountabilities Cost and volume focus Value focus Minim
Slide 26: Position the Group for growth: Wholesale & International Banking
Position the Group for growth • Wholesale & International Banking – Relationship profitability enhanced – Stronger second half performance in Wholesale – Cross-business development programmes
Slide 27: Maximising the value of our wholesale franchise
Position the Group for growth Maximising the value of our wholesale franchise Where we were . . . . . . Where we are going Cost and income focus Relationship value focus Our wholesale businesses as Our wholesale businesses as silos partners Focus on core banking products Focus on share of wallet Bal
Slide 28: Position the Group for growth: Insurance and Investments
Position the Group for growth • Insurance and Investments – Scottish Widows – Improved market share – Improved margins for new business – Strengthened distribution capability – SWIP – Better retail funds performance – Lloyds TSB Insurance – Improved home insurance income – Increased use of direct ch
Slide 29: Maximising the value of bancassurance
Position the Group for growth Maximising the value of bancassurance Where we were . . . . . . Where we are going Focus on new business Focus on new business volumes profitability and value Manufacturing Manufacturing and strategy distribution strategies Product offers tailored to Single product offe
Slide 30: Focus on value
Focus on value • The objective - build strong customer franchise • The guiding principle - economic profit growth • The result - top quartile TSR
Slide 31: Summary
Summary • Strategic progress – Lowered volatility – High returns - economic profit growth – Profitable growth in core franchise • Financial progress – Positive jaws – Strengthened capital ratios – Stronger second half
Slide 32: Forward looking statements
Forward looking statements This document is a summary only of certain information contained in the announcement dated 8 March 2004 and should be read in conjunction with the full text of the announcement. This document contains forward looking statements with respect to the business, strategy and pl